Preparation is critical to achieving the best price. Once you have decided that it is the right time to sell, undertaking an exit review in advance of putting your company on the market means a smoother and generally quicker disposal process and ultimately a higher valuation.
1) Developing an action plan
Firstly, you must focus on the key drivers that will increase the disposing company's exit price and position it in the most appealing way to potential buyers. A good place to start is to identify any weaknesses that a buyer would highlight during the due diligence process such as the following.
Quality of books and records. Over exposure to a few major clients. Quality of customer base and customer contracts. Stickiness of sales and customer churn. Inadequacy of protection around intellectual property and licensing. Over dependence on owner. Ideally, there should be an incentivised, competent management team that will stay with the business after sale.
Selling a business often includes assets such as goodwill, trade marks or client lists as well as physical assets. Therefore it is important to determine what you are selling and whether this is to be done through an asset or share sale. It is vital that any structure is considered from a tax perspective and advice obtained accordingly.
Once the potential weaknesses are identified, an action plan should be designed to minimise these risks.
2) Execute action plan
The time taken to execute an action plan can vary from three months to a year depending on the actions required though it is advisable that all items identified are achievable and are completed in an efficient manner.
3) Ensure all commercial and financial risks are minimised
A good quality finance team helps give buyers and investors comfort in the business' performance and builds a level of trust. Generally all books and records should be in good order and up to date. Detailed management and financial accounts for the last three years should be available and all liabilities should be reduced as much as possible. In particular, make sure all tax payments are up to date.
On the completion of the action plan, all commercial and financial risks identified in step one should be minimised.
4) Identify potential buyers in the industry
It is helpful if you can identify potential buyers in the industry and try to ensure that your business meets their acquisition criteria. Ultimately a financial adviser should be able to complete a...